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The Reserve Bank has left the Official Cash Rate (OCR) unchanged at 6.75
percent.

Reserve Bank Governor Alan Bollard said: “The economy has recently
shown signs of softening. GDP growth has continued to ease over recent
quarters, particularly in sectors such as manufacturing that are exposed to the
strong exchange rate. Indicators of business activity have been pointing
downwards for some months and it now appears that household consumption growth
is also beginning to weaken. However, residential housing market indicators
remain firm, representing an upside risk for the future path of household
spending and inflation. We view the overall easing in activity as broadly
consistent with our June
MPS economic outlook.

“Inflation pressures nevertheless remain present. Several years of
strong growth have led to productive resources becoming stretched and the
resulting inflation pressures will take some time to unwind. Moreover,
additional short-term inflation pressures have recently emerged as a result of
surging oil prices and the waning impact of the strength in the exchange rate
over recent years. These short-term inflation pressures, which could easily be
exacerbated, are now expected to push CPI inflation temporarily above 3 percent
over the coming quarters.

“Looking further ahead, we expect that current policy settings will be
sufficient to achieve our objective of 1-3 percent inflation on average over the
medium term. However, in the current environment, monetary policy must remain
vigilant. We remain vulnerable to upside inflation risks and monetary policy
must continue to work at reducing the ongoing excess demand pressures. A firm
policy stance is also necessary to prevent the expected short-term inflation
pressures from becoming entrenched in inflation expectations. A further
tightening of policy could not be ruled out in the event of a resurgence in
medium-term inflation pressures. Certainly there remains no prospect of a
policy easing in the foreseeable future.”

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